On 9 November, the European Commission published a legislative proposal to extend the application date of the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs) by one year. PRIIPs requires the disclosure of Key Information Documents (KIDs) when PRIIPs are sold to retail investors. The delay has been widely anticipated by the market and gives manufacturers and distributors of PRIIPs products until 1 January 2018 to put implementation plans in place. The Commission did not amend any other provisions in the Level 1 text. The proposal follows a vote by the EU Parliament on 14 September to reject the EU Commission’s Regulatory Technical Standards (RTS) on PRIIPs and concerns expressed by 24 Member States in the Council in a vote by the Competitiveness Council of the EU on 20 September (see our blog of 20 September for further detail on the Parliament’s rejection of the RTS).
How should firms respond?
The proposed delay will be welcome news for firms. Many will be relieved that the Commission has not in the end taken the view that PRIIPs can enter into force before the finalisation of the RTS – a move that would risk firms taking different approaches across sectors and Member States, or consumers taking decisions based on KIDs that firms did not consider were ready to be distributed.
The proposed 12 month delay will allow further time for issues in the RTS to be addressed and any additional guidance to be provided by the European Supervisory Authorities (ESAs). It will also mean greater alignment with the MiFID II application date (3 January 2018) and the Insurance Distribution Directive application date (23 February 2018), enabling firms to take a more strategic approach to implementation of the overlapping disclosure rules.
But can firms now rest on their laurels? While the Commission has proposed the delay, amending legislation must be adopted which formally amends the implementing timeline set out in the existing Level 1 text. Given the necessary European Parliament and Council meetings that need to take place as part of the negotiation process and the reviews required, the legislation may not enter into force until around the second half of December 2016. This does not provide much flexibility, if any, if the timings slip or negotiations are delayed and the Commission has not stated what will happen if agreement is not reached in time. Firms should, therefore, watch the legislative process closely to monitor this risk. Furthermore, firms should not lose momentum on their PRIIPs programmes owing to the complexity of work that still needs to be delivered for PRIIPs implementation and the risk that comes with suspending and restarting delivery efforts. Firms have already made significant progress and should proceed with aspects of implementation that are unlikely to be affected by the RTS revisions. Those who are able to produce KIDs by mid-2017 prior to the deadline are likely to be more competitive and less risky for insurers and other distributors to include in their portfolios. A soft deadline of mid-2017 should, therefore, become the focus for forward-thinking firms.
What are the next steps on the legislative delay proposal and RTS?
The Commission’s legislative proposal must now be agreed by the EU Parliament and Council separately and then as part of trialogue negotiations, before coming into force before the end of the year (i.e. the date on which the PRIIPs Regulation is currently due to apply to firms).
In a press release on 9 November, the Commission stated that it had asked the ESAs to make targeted changes to the RTS, in particular, on multi-option products, performance scenarios, the comprehension alert and the presentation of insurance related costs. It is also inviting the ESAs to develop guidance, in order to provide greater clarity for insurance companies, on the practical application of credit risk mitigation factors under the RTS for insurers. The guidance must be in line with the provisions of the RTS and not alter their substance. The ESAs have six weeks to send the redrafted RTS back to the Commission for endorsement. The Commission has previously said it expects to adopt the revised RTS in February 2017. Following a scrutiny period by the Parliament and Council, the Commission expects the revised PRIIPs RTS to be in place in the first half of 2017 to apply as of 1 January 2018. By our calculation, based on the possible scrutiny periods allowed, agreement on the RTS can be expected between March 2017 at the earliest and August 2017 at the latest; sometime in between is the most likely outcome.
Below we set out a timetable detailing the developments which have occurred this year and a projection of key dates in the legislative process. Please note that these are indicative dates only and may be subject to change.
|31 March 2016||ESAs published RTS|
|30 June 2016||RTS adopted by commission|
|14 September 2016||EP rejected RTS|
|15 September 2016||Council held a silence procedure on RTS, during which 19 delegations (accounting for 59.49% of the total population of the EU) indicated their intention to object to the RTS. This fell short of the qualified majority so a rejection was not taken forward.|
|9 November 2016||Commission published PRIIPs legislative delay proposal and sent the RTS back to the ESAs for redraft|
|November - December 2016||Plenary vote to agree legislative delay proposal in the EP and adoption of proposal in Council (expected)|
|December 2016 (most likely second half)||PRIIPs delay legislation enters into force (expected)|
|February 2017||Revised RTS adopted by the Commission (expected)|
|March 2017||Earliest revised RTS could enter into force (expected)|
|August 2017||Latest revised RTS could enter into force (expected)|